community services block grantaudits march 1, 2012 1
TRANSCRIPT
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COMMUNITY SERVICES BLOCK GRANT AUDITS
March 1, 2012
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Risk: Increased Funding Levels
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HHS $2B
Health Centers
HHS $2B
Child Care &
Development
DOE $5BWeatherization
HUD $1BCommunity
Development
HHS $1BCommunity
Services
HHS $2BHead StartEarly Head
Start
CAAs
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Risk: CSBG Legislation Alert issued to Assistant Secretary for Children and Families requesting
legislative change
Weatherization – an agency identified as in-crisis and/or vulnerable can be disqualified from receiving Recovery Act funding
CSBG – a state cannot withhold, terminate and/or reduce the funding of an eligible entity without going through the corrective action process defined in section 678C of the CSBG Act and CSBG Information Memorandum 109
October 30, 2009: 20 community action agencies classified as in crisis or vulnerable scheduled to receive $44.9 million in Recovery Act funds
State 1: Two at risk agencies funded under CSBG, reduced or withheld funding under weatherization
State 2: Two at risk agencies funded under CSBG, reduced or withheld funding under weatherization
State 3: State IG not willing to fund at risk agency under CSBG
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Goals
To identify high risk states and determine whether they established adequate internal controls for assessing and monitoring CAAs
To identify high risk community action agencies within these states and assess:
financial viability
capacity to manage and account for Federal funds
capability of operating an HHS program in accordance with Federal regulations
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State Risk Factors
ACF State ranking (April 2009) Past problems Distance, monitoring efforts, number of CAAs Demographics (poverty) Client population (total served to number of CAAs) Timeliness – late submission of CSBG state plans
Increase in funding
Amount unspent by states
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State Risk Factors
ACF risk assessment (IM-112) Material weaknesses Financial and operating controls Policies and procedures Compliance monitoring
Timeliness – late submission of risk assessment
Number of high risk CAAs to total CAAs
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Focus at State Level
Assess controls for ensuring CAAs:
minimize risk of local agencies having to spend Recovery Act funds within short time frames, including the use of the IM 112 risk assessments
ensure Recovery Act funds are only used for services provided by September 30, 2010
ensure Recovery Act funds are only used to pay for eligible services by December 29, 2010
ensure Recovery Act funds not used by local agencies are immediately returned to Federal government
identify the number of local agencies the State has reviewed during the most current 3-year review cycle
determine how many local agencies identified as at risk received Recovery Act funds under CSGB but not under Weatherization
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State Oversight
No findings 1
No, Undoc-umented
Site Visits 5
Incomplete Risk Assessments 2
Reporting Errors 2
Controls over Funds 4
Inadequate Program Controls 1
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State Oversight
No or undocumented site visits
No assurance full onsite reviews were completed within the required 3-year period 100% not completed for 3 states
9% not completed for an additional state
Site visits were not adequately documented, limiting ability to determine whether they had actually been conducted for a fifth state
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State Oversight
Incomplete or inaccurate risk assessments
4 of 13 CAAs receiving $4.3M did not report unresolved audit findings from annual audit reports for one state
13 of 40 CAAs receiving $5.7M did not report material weaknesses, reportable conditions or questioned costs for a second state
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State Oversight
Reporting errors
Inadequate data reported on Recovery.gov
First state Expenditures overstated by $645,700 Estimated jobs overstated by 124 FTEs for 5 CAAs
tested
Second state Expenditures overstated by $114,000 $2M in CCDBG reported as CSBG funds
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State Oversight
Poor controls over funds No procedures to recover unspent funds by
CCAs Funds disbursed to 2 CAAs without expense
reports Insufficiently tracked expenditures — $2.7M
per accounting records, $2.5M per grant management records
Monitoring did not begin until March 2010
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State Oversight
Inadequate program controls State relied on self-certifications to verify
eligibility requirements related to the Federal poverty level
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Community Action Agencies
Selected and audited 3 community action agencies for each State using a risk-based approach
Unfiled risk assessments required by IM 112
Unspent CSBG funds provided by State
Financial statement analysis (trend and ratio analysis)
Received CSBG funds but not weatherization funds
Forgiven debt, line-of-credit drawdowns
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Controls at Community Action Agencies
No findings
Quality Improvement Plan
Other Inadequate Controls
Unaudited Financial Statements
Untimley Financial Reports
Whistle Blower Protection
Poor Segregation of Duties
Financial Viability
Inappropriate Use of Funds
Inadequate Records
Program Deficiencies
Board of Director Deficiencies
Insufficient Policies and Procedures
Reporting Errors
Safeguarding Federal Funds
0 2 4 6 8 10 12 14 16 18 20
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5
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Controls at Community Action Agencies
Safeguarding Federal funds 8 CAAs maintained Federal funds in excess
of amount protected by FDIC Balance exceeded $12M for one CAA Balance exceeded $3.8M for a second CAA Balance exceeded $2M for a third CAA Balance exceeded $770,000 for a fourth CAA
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Controls at Community Action Agencies
Safeguarding Federal funds Account balances on audited financial
statements did not tie to accounting records
Allocation of salaries based on budgets Large balances of unspent Recovery Act
funds with a limited number of months left in funding period
$35,200 in undeposited funds
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Controls at Community Action Agencies
Reporting errors Jobs overstated by 59 FTEs
OMB requirements for reporting job estimates not followed
CAA did not maintain adequate documentation to support data reported to ROMA information that was reported was submitted 4
to 9 days after the due dates
Expenditures overstated by $38,500 in Recovery.gov
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Controls at Community Action Agencies
Insufficient, unimplemented or incorrectly applied policies and procedures Lack of subrecipient monitoring procedures No procedures for the use of consultants Did not properly account for equipment Did not conduct physical equipment inventories Did not conduct timely physical inventories Inappropriate allocations
100% of time charged when 28% of time spent on ARRA
100% to time charged when 100% of time spent fund raising
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Controls at Community Action Agencies
Board of Director deficiencies Board does not fully participate in
developing, planning, implementing and evaluating the CSBG program—abdicated responsibilities to Executive Director
Employees used rubber stamps of Board members’ signatures to sign checks
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Controls at Community Action Agencies
Program deficiencies Did not always ensure that incomes of
individuals receiving CSBG benefits under the Recovery Act were below 200% of the Federal poverty level
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Controls at Community Action Agencies
Inadequate records $38,500 reported in quarterly financial
support could not be supported by accounting records
Could not assess financial viability because audited financial statements for 3-years were not available
Unable to provide inventory records Independent auditor identified 27 incorrect
adjusting journal entries due to misclassifications, double recording, improperly recorded transactions
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Controls at Community Action Agencies
Inappropriate use of fund $12,270 in unapproved office furniture $10,540 paid to subrecipients, no services
provided $41,500 paid to subcontractors, no services
provided $18,440 claimed using estimates instead of
actual costs $72,200 used for unapproved incentive awards $58,500 in unsupported subgrantee wages
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Controls at Community Action Agencies
Financial viability 0.36 current ratio, working capital
decreased by over $7M over 2-year period Debt ratio > 1.0 over 3-years, negative
cash balances for 2-years Declining current ratio over 3-year period
(1.0 to .78), negative working capital and net losses for all 3 years
Negative working capital of ($4.9M) and ($1.2M)
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Controls at Community Action Agencies
Poor segregation of duties Program directors and managers performed
own physical inventories and maintained own inventory records—inventory valued at $1.4M
Banking and approval of expenditure responsibilities assigned to same individual
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Next Steps
Multi-state audit to determine whether community action agencies have appropriately used Federal funds, including Recovery Act funds
Identified 27 high risk community action agencies to audit
Audits in various stages of completion
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Questions?